Question

Given all the characteristics of perfect competition, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?

A.Opinions of friends
B.Quality of the good
C.Price
D.Reputation of the firm

Answer 1

In a perfectly competitive market, price is the main factor consumers consider when deciding from which firm to purchase, due to identical product offerings and high availability of information.

Step-by-step explanation:

Given the characteristics of perfect competition, the main factor that affects consumers' decisions on which firm to purchase a good from is price. In a perfectly competitive market, firms produce identical products, and consumers have all relevant information about these products, leading to the primacy of price over other factors such as opinions of friends, quality, and reputation of the firm. The competition is so high that price becomes the ultimate deciding factor because it is assumed that the quality between products from different firms is indistinguishable.

In a perfectly competitive market, the main factor influencing consumers' decisions on which firm to purchase a good from is indeed price. Perfect competition is characterized by identical products produced by firms and perfect information available to consumers. With indistinguishable products and comprehensive information, price becomes the primary determinant in consumer choices. The intense competition implies that consumers perceive the quality of products from different firms as uniform, eliminating factors such as opinions of friends, brand reputation, or product quality differentials. As a result, consumers prioritize affordability, and firms compete primarily through price adjustments to attract buyers. In perfect competition, the homogeneity of products and the availability of complete information make price the dominant factor shaping consumer decisions in this highly competitive market structure.

Answer 2

The correct answer is c. In a perfect competition market, consumers primarily base their decision on which firm to purchase a good from on the product's price, since all other factors are similar across different firms.

Step-by-step explanation:

The main factor that affects consumers' decisions on which firm to purchase a good from in a perfect competition market structure is price. In perfect competition, products are considered homogenous, meaning they are essentially the same regardless of which firm produces them. Therefore, non-price factors such as opinions of friends, quality differences, and the reputation of the firm are typically not distinguishing factors.

Consumers in a perfect competition market face many suppliers that sell identical products, and they are well informed about the prices set by each firm. As a result, firms are price takers, which means they must accept the market price set by the forces of demand and supply. Any attempt to charge more than the going market price would drive consumers to purchase from other firms offering the same good at the market rate.

Given the large number of firms, the absence of barriers to entry and exit, and the homogeneity of products in perfect competition, price becomes the predominant factor for consumers when deciding from whom to purchase. Firms cannot differentiate their product based on quality or branding; therefore, they compete solely on the basis of price. Consumers will naturally choose the firm that offers the lowest price for the same product.